The decision to apply for a debt consolidation plan (DCP) is a game changer. Not only because you have taken a major step to pay your debt but mostly because it takes a combination of commitment and self-control to get to a place where you can once again breathe comfortably when it comes to your finances.

Of course, there may be hiccups on the road to freedom from debt if you have chosen the DCP route. Don’t worry though, because most of them can be avoided! If you have taken up a debt consolidation plan, here are 3 mistakes that you may end up making. And, of course, how you can avoid them.

Mistake 1: Making none or only minor changes in the way you spend

You know the phrase, “people are creatures of habit”? Well, it’s true.

You may be in debt, but that hasn’t stopped you from spending like you always do. So, you eat out as often as you used to, you indulge in retail therapy each time you feel blue, and you decide to treat yourself at the drop of a hat. After all, you only live once, right? And it is your duty to live life to the fullest! And that’s fine.

As long as you live a full and happy life in moderation. Especially, if that happiness comes from spending money on things you want but don’t really need.

This is usually because you think that a DCP is the answer to all of your debt problems. The truth is, a debt consolidation plan is just the beginning. You need to manage your spending and cut the frills each month or you may just end up piling on more debt than earlier.

What you can do

Make budgeting your new best friend. List down what you spend on each month and cut down on spending that is absolutely non-essential.

That isn’t to say that you cannot enjoy yourself until your debt is paid off. Far from it. All we are saying is that if there is a cheaper alternative, then take advantage of it. So, if most of your money is spent eating out, maybe cook at home more often and eat out a little less.

These are small steps that you can take to ensure that at the end of the month, you aren’t struggling to pay the instalment on your DCP and/or meet any other financial commitments that you may have.

Moreover, this frugal living will end up becoming a habit in the long run! And since we know that people are creatures of habit, what could be better?

Mistake 2: Using the revolving credit facility

Along with your DCP comes a revolving credit facility with a credit limit that is 1x your monthly income.

Yes, this credit facility is an easy source of money. But if you do end up using it, you are only adding to the debt you already have. Not to mention that if you do end up missing a payment, like with all other credit facilities, you will be charged a high rate of interest as well as late payment fees.

What you can do

Don’t use the credit facility! It’s that simple.

No matter how much you want to, it isn’t worth adding to your debt. Your best bet, however, would be to live on a shoestring budget and whatever you have from your monthly income so that you can pay off your debt and not increase it.

Mistake 3: Putting an end to saving (for the time being)

It may make complete sense to stop saving for a while and use that money to pay off your debts instead. In fact, you probably used most of your savings to pay as much of your debt as you could before applying for a DCP.

And that’s fine. Just don’t stop putting aside money into that emergency fund.

A mistake that most people tend to make is to ignore saving while they pay their debt. As a result, you don’t have an emergency fund to dip into when the need arises. Which doesn’t really make sense because you know that your emergency fund came in handy when you needed to reduce your debt in the first place!

That in itself should be a good enough reason to continue saving. We’re not saying that you will end up in debt again. But emergencies don’t always have to be related to debt, do they?

What you can do

Instead of not saving at all, consider reducing the amount you put aside each month. So, if earlier you managed to put aside S$200 each month, how about putting aside S$100 or even S$50 if S$100 is too much.

S$50 a month may seem like a small amount and you may be tempted to make use of it for your daily expenses, instead. But don’t. Because before you know it, that S$50 will amount to S$1,000.

At the end of the day, you need to remember that you didn’t get into debt overnight. So, chances are you aren’t getting out of it overnight either. And while a DCP is a step in the right direction, like we said earlier, it is just the beginning.

The real challenge lies in addressing the root cause of your spending and avoiding these 3 common traps that are oh-so-easy to fall into. Lucky for you, we warned you in advance!

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